- Pennsaid® 2% U.S. prescriptions increased from Q1 -
- Cash and short-term investments increased to $20.0 million with no debt -
- Nuvo to Host Conference Call/Audio Webcast August 10 at 8:00 a.m. ET -
MISSISSAUGA, ON, Aug. 9, 2017 /CNW/ - Nuvo Pharmaceuticals Inc. (Nuvo or the Company) (TSX:NRI), a commercial healthcare company with a portfolio of commercial products and pharmaceutical manufacturing capabilities, today announced its financial and operational results for the second quarter ended June 30, 2017. For further details on the results, please refer to Nuvo's Management, Discussion and Analysis (MD&A) and Condensed Consolidated Interim Financial Statements which are available on the Company's website (www.nuvopharmaceuticals.com).
Second Quarter 2017 and Business Update
Second Quarter Financial Summary(1)
| (1) |
The financial information presented herein reflects results from continuing operations with Nuvo's previously disclosed segment, Crescita, presented as a discontinued operation. |
| (2) |
Adjusted EBITDA is a non- International Financial Reporting Standards (IFRS) financial measure defined by the Company below. |
"The key development in the quarter was the enhancement of the long-term security of our main source of revenue as a result of Horizon's successful court defense of one of the Pennsaid 2% U.S. patents," said John London, Nuvo's CEO. "As expected, our second quarter financial results were negatively impacted by our previously announced shut down of non-serialized commercial bottle production of Pennsaid 2% to facilitate compliance by Nuvo and Horizon with the U.S. Federal Drug Chain Security Act."
Growth Strategy
The Company's focus, in the short-term, is to continue to monetize Pennsaid 2% through out-licensing to commercial partners in international markets, while at the same time, identifying new opportunities to acquire additional, accretive, late or commercial-stage products or businesses to further diversify the Company's existing product portfolio and revenue streams, and to better utilize the Company's manufacturing facility in Varennes, Québec.
Licensing and Product Acquisitions
Nuvo is in active discussions relating to potential transactions to license or acquire additional, accretive commercial assets to further diversify the Company's product portfolio and maximize the Company's manufacturing capabilities at our FDA approved site in Varennes, Québec. Nuvo will continue to actively seek appropriately priced bolt-on or transformative transactions that are strategically aligned with the Company's business plan and will deliver shareholder value.
Pennsaid 2% Out-licensing
Despite the failure of the 2016 Pennsaid 2% Trial, Nuvo continues to be in active discussions with potential commercial licensees of Pennsaid 2% for various global territories. Nuvo anticipates signing licensing agreements covering multiple countries throughout the second half of 2017 and 2018. Nuvo projects that incremental revenue from licensing agreements signed in 2017 will commence in late 2018 or early 2019, subject to obtaining regulatory approvals for Pennsaid 2% in the related territories.
Pennsaid 2% U.S. Update
Court Decision Upholding Validity of a Pennsaid 2% Patent
In May, the United States District Court for the District of New Jersey upheld the validity of one of the claims in Horizon's U.S. patents covering Pennsaid 2%, which a generic company, Actavis Laboratories UT (Actavis) had challenged. The court decision prevents Actavis from launching a generic version of Pennsaid 2% in the United States until 2027 when that patent expires. (There are other Horizon patents that cover Pennsaid 2% that expire as late as 2030 that were not the subject of this trial). Actavis was the first company to file an application for approval of a generic version of Pennsaid 2% with the FDA. This first filer status typically prevents other generic companies from entering the market until after the first filer has had the opportunity to sell its generic version for 180 days. Actavis has appealed the trial decision and another similar court challenge filed by another generic pharmaceutical company, Lupin is pending; however, it is our view that the most likely result is that Pennsaid 2% will enjoy at least 10 more years of U.S. commercial sales without generic competition.
Federal Drug Supply Chain Security Act Compliance
The Federal Drug Supply Chain Security Act (DSCSA) rules require all manufacturers of drug products sold in the U.S. to serialize each individual drug package to enhance drug traceability in the event of an adverse event and to prevent drug counterfeiting. In order to be in compliance with the DSCSA, the Company has purchased new packaging equipment and technology systems in coordination with Horizon. The Company commenced the process of installing and qualifying the new packaging equipment at its manufacturing plant in Varennes, Québec for commercial production; however, on June 30, after the Company had stopped commercial production of non-serialized commercial bottles for Horizon, the FDA announced that it was extending the date for serialization compliance by one year to November 27, 2018. As a result of this change, Horizon has requested that the Company deliver some non-serialized commercial bottles before the qualification process is completed. The Company expects to complete qualification and be fully compliant with the DSCSA before the end of this year. As a result of these timing changes, the Company expects that some commercial production and revenue may shift to earlier in 2017 than was previously anticipated.
Horizon Adjustment of Sales and Marketing Resources
When Horizon released its Q1 results, it indicated that due to reimbursement pricing pressures, the profitability of its primary care group that sells Pennsaid 2% and other drug products had decreased. As a result, Horizon indicated that it was reallocating resources to better align its costs and profits. The reallocation included a reduction in the size of Horizon's primary care sales force that markets Pennsaid 2% to physicians. Nuvo gets paid a fixed price per commercial bottle supplied to Horizon and is not directly impacted by any reduction in Horizon's profitability. As prescription volumes increased in Q2 compared to Q1, the Company has not yet seen a negative impact from Horizon's sales force reduction that might impact Horizon's typical commercial bottle ordering patterns. The Company expects Horizon's cost reallocation initiatives to also result in a decrease in the number of product samples Horizon distributes to physicians. A reduction in sample product orders from Horizon will have a negative impact on the Company's future financial results.
Second Quarter Financial Review
Table of Selected Financial Results
For further details on the results, please refer to Nuvo's Management, Discussion and Analysis (MD&A) and Condensed Consolidated Interim Financial Statements which are available on the Company's website (www.nuvopharmaceuticals.com).
| Three months ended |
Six months ended |
|||||
| June 30, 2017 |
June 30, 2016 |
Change |
June 30, 2017 |
June 30, 2016 |
|
|
| (from continuing operations, Canadian dollars in |
$ |
$ |
$ |
$ |
$ |
$ |
| Product Sales |
2,786 |
7,317 |
(4,531) |
9,439 |
14,642 |
(5,203) |
| Gross Margin % on Product Sales |
48% |
57% |
(9%) |
55% |
57% |
(2%) |
| Other Revenue |
314 |
789 |
(475) |
643 |
1,306 |
(663) |
| Total Operating Expenses |
3,247 |
5,608 |
(2,361) |
7,963 |
10,986 |
(3,023) |
| Net Income (Loss) |
(203) |
2,491 |
(2,694) |
1,993 |
1,239 |
754 |
| Adjusted EBITDA |
(114) |
3,176 |
(3,290) |
2,184 |
6,165 |
(3,981) |
Total revenue, consisting of product sales, royalties and contract and other revenue for the three months ended June 30, 2017 was $3.1 million compared to $8.1 million for the three months ended June 30, 2016. The decrease in total revenue was primarily related to a decrease in product sales. Total revenue for the six months ended June 30, 2017 was $10.1 million compared to $15.9 million for the comparative six-month period.
Total operating expenses for the three months ended June 30, 2017 decreased to $3.2 million compared to $5.6 million for the three months ended June 30, 2016. The decrease in operating expenses was primarily attributable to a decrease in cost of goods sold (COGS) and general and administrative (G&A) expenses. Total operating expenses for the six months ended June 30, 2017 decreased to $8.0 million from $11.0 million in the comparative six-month period.
COGS decreased to $1.5 million for the three months ended June 30, 2017 compared to $3.2 million for the three months ended June 30, 2016. The decrease in COGS was attributable to a decrease in product sales. The decrease in product sales during the current quarter reduced the gross margin on product sales to $1.3 million or 48% compared to $4.2 million or 57% in the comparative quarter. For the six months ended June 30, 2017, COGS was $4.2 million compared to $6.3 million in the comparative six-month period. Gross margin on product sales for the six months ended June 30, 2017 was $5.2 million or 55% compared to $8.3 million or 57% for the six months ended June 30, 2016.
R&D expenses were consistent quarter-over-quarter at $0.2 million for the three months ended June 30, 2017 and 2016. R&D expenses were $0.5 million for the six months ended June 30, 2017 compared to $0.4 million for the comparative six-month period. The increase in spending in the current six-month period related to the 2016 Pennsaid 2% Trial for the treatment of acute ankle sprains.
G&A expenses decreased to $1.6 million for the three months ended June 30, 2017 from $2.3 million for the three months ended June 30, 2016. In the current quarter, the decrease of $0.7 million was primarily attributable to a decrease in stock-based compensation (SBC) expenses. In the comparative three-month period, the Company recognized a $0.7 million SBC expense primarily related to the adjustment to market value for the outstanding share appreciation rights (SARs). G&A expenses were $3.3 million for the six months ended June 30, 2017 compared to $4.4 million for the six months ended June 30, 2016.
The Company earned net interest income of $34,000 for the three months ended June 30, 2017 compared to $22,000 for the three months ended June 30, 2016. The increase in net interest income in the current quarter related to interest earned on the $5.0 million of short-term investments. Net interest income was $72,000 for the six months ended June 30, 2017 compared to $78,000 for the comparative six-month period.
For the three months ended June 30, 2017, the Company experienced a net foreign currency loss of $56,000 compared to a net foreign currency loss of $32,000 in the comparative quarter. For the six months ended June 30, 2017, the Company experienced a net foreign currency loss of $0.1 million compared to a net foreign currency loss of $0.6 million in the comparative six-month period.
Net loss from continuing operations was $0.2 million for the three months ended June 30, 2017 compared to net income from continuing operations of $2.5 million for the three months ended June 30, 2016. The decrease in the current quarter was attributable to a $2.8 million reduction in gross margin on product sales and a $0.5 million decrease in contract and other revenue, partially offset by a decrease in G&A expenses. Net income from continuing operations was $2.0 million for the six months ended June 30, 2017 compared to $4.4 million for the six months ended June 30, 2016.
Adjusted EBITDA decreased to $(0.1) million for the three months ended June 30, 2017 compared to $3.2 million for the three months ended June 30, 2016. In the current quarter, a decrease in Adjusted EBITDA primarily related to a decrease in gross margin. Adjusted EBITDA decreased to $2.2 million for the six months ended June 30, 2017 compared to $6.2 million for the comparative six-month period.
Cash and short-term investments were $20.0 million as at June 30, 2017 compared to $17.6 million as at December 31, 2016. The increase in cash and short-term investments was primarily attributable to an increase in cash provided by operations.
The number of common shares outstanding as at June 30, 2017 was 11,550,897.
Non-IFRS Financial Measures
Adjusted EBITDA
EBITDA is a non-IFRS financial measure. The term EBITDA does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. The Company defines Adjusted EBITDA as net income from continuing operations before net interest income, plus income tax expense, depreciation, amortization and SBC. Management believes Adjusted EBITDA is a useful supplemental measure from which to determine the Company's ability to generate cash available for working capital, capital expenditures and income taxes.
The following is a summary of how EBITDA and Adjusted EBITDA are calculated:
| Three Months Ended |
Six Months Ended |
||||
| 2017 |
2016 |
2017 |
2016 |
||
| in thousands |
$ |
$ |
$ |
$ |
|
| Net income (loss) from continuing operations |
(203) |
2,491 |
1,993 |
4,419 |
|
| Add back: |
|||||
| Net interest income |
(34) |
(22) |
(72) |
(78) |
|
| Depreciation and amortization |
58 |
55 |
112 |
113 |
|
| EBITDA |
(179) |
2,524 |
2,033 |
4,454 |
|
| Add back: |
|||||
| SBC |
65 |
652 |
151 |
1,711 |
|
| Adjusted EBITDA |
(114) |
3,176 |
2,184 |
6,165 |
|
Management to Host Conference Call/Webcast
Management will host a conference call to discuss the results tomorrow (Thursday, August 10, 2017) at 8:00 a.m. ET. To participate in the conference call, please dial 1 (888) 231-8191 or (647) 427-7450, reference number 51804247. Please call in 15 minutes prior to the call to secure a line. You will be put on hold until the conference call begins.
A taped replay of the conference call will be available two hours after the live conference call and will be accessible until August 17, 2017 by calling 1 (855) 859-2056 or (416) 849-0833, reference number 51804247.
A live audio webcast of the conference call will be available through www.nuvopharmaceuticals.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to hear the webcast.
About Nuvo Pharmaceuticals Inc.
Nuvo (TSX:NRI) is a commercial healthcare company with a portfolio of commercial products and pharmaceutical manufacturing capabilities. Nuvo has three commercial products that are available in a number of countries; Pennsaid 2%, Pennsaid and the heated lidocaine/tetracaine patch. Pennsaid 2% is sold in the U.S. by Horizon Pharma plc (NASDAQ:HZNP) and is available for partnering in certain other territories around the world. Nuvo manufactures Pennsaid for the global market and Pennsaid 2% for the U.S. market at its FDA, Health Canada and E.U. approved manufacturing facility in Varennes, Québec. For additional information, please visit www.nuvopharmaceuticals.com.
Forward-Looking Statements
This Press Release contains "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company's control. Nuvo's actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, readers should not rely on any of these forward-looking statements. Important factors that could cause Nuvo's actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors included in Nuvo's most recent Annual Information Form dated March 1, 2017 under the heading "Risks Factors", and as described from time to time in the reports and disclosure documents filed by Nuvo with Canadian securities regulatory agencies and commissions. These and other factors should be considered carefully and readers should not place undue reliance on Nuvo's forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and none of Nuvo or any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.
Any forward-looking statement made by the Company in this Press Release is based only on information currently available to it and speaks only as of the date on which it is made. Except as required by applicable securities laws, Nuvo undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
SOURCE Nuvo Pharmaceuticals Inc.
Investor Relations, Email: [email protected]
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